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Help with solving financial word problem

label Algebra
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account_balance_wallet $5

If an apartment complex will need painting in 3 1/2  years and the job will cost $25,000, what amount needs to be deposited into an account now in order to have the necessary funds? The account pays 6% interest compounded semiannually. 

Nov 17th, 2014

This is a case of Coumpound Interest and you have to find the Present value.

For Compound Interest the formula is

FV = PV ( 1+r/100)^n
therefore, PV = FV/(1+r/100)^n)

Here,
FV = Future Value = $25000
PV = Present Value = ?
r = rate of interest = 6%,since this is semiannually, here r = 6/2 = 3
n= no. of term = 3 1/2 years compounded semiannually = 7

Hence,

FV = 25000/(1+3/100)^7)

On calculating,
FV = $20,327.29


Thanks

Nov 17th, 2014

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